Topic: Growth Stocks

Use our growth investing examples, tips, & strategies for maximum portfolio returns

Subtitle: Learn from growth investing examples and our strategies to help you target the best growth opportunities. Find out more about these strategies now.

If you want your growth investing strategy to be profitable for decades, we think you should follow our growth investing examples, tips, and recommendations below.

Among the considerations that go into a successful growth investing strategy, many investors overlook a number of important factors that can considerably lower their risk.

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Growth investing examples and tips for success 

  • Look for growth stocks that have ownership of strong brand names and an impeccable reputation. Customers keep coming back to these businesses and will try their new products.
  • The best growth stocks to buy now should have the ability to profit from secular trends. These trends outlast ordinary business booms and busts, because they reflect ongoing social change. Rising environmentalism and social responsibility are just two examples of secular trends.
  • Growth stocks should not be confused with momentum stocks. Momentum stocks are typically stocks with prices that are moving faster than the market on anticipated faster-than-average earnings growth. Momentum investing theory can be summed up as “buy high, sell higher.” The trouble is that when the stock’s rise falters, momentum investors also try to get out as a group, but there are never enough buyers. This can lead to violent price fluctuations—and often big losses.

Use these four key ways to cut risk with growth investing

  • Limit aggressive investments to a smaller component of your overall stock portfolio.
  • Cut your risk even more by taking a conservative approach to your aggressive investing.
  • Downplay stocks in the broker/media limelight.
  • Look for aggressive investing stocks with hidden value.

Growth investing examples to avoid: Day trading 

Day trading is the short-term buying and selling of securities. Some brokerage firms that practice day trading complete thousands of trades in a day. New and inexperienced investors often have aspirations of becoming day traders.

Most non-professionals who get involved with day trading or options trading wind up losing money if they stick with it long enough. In that respect, it’s a lot like playing casino games.

The big risk with day trading is that you’ll try out a risky and ultimately unwinnable investment approach, and hit a lucky streak. This could embolden you to put serious money at risk just when your results are about to regress to the mean and deliver losses instead of profits.

All in all, it’s far more important to focus on high-quality, well-established growth companies and how they fit in your portfolio. The longer you hold these stocks, the greater the chance that your profits will improve.

Growth investing examples for profit: Hidden assets

You may recognize “hidden value” as a concept we’ve often talked about. We use it to describe valuable corporate assets that don’t specifically appear on a balance sheet, and may not jump out at you from a glance at an annual report.

Here are some straightforward examples we’ve used to illustrate what we mean by “hidden assets.”

One of our long-time favourites is the tax treatment of research spending. When companies carry out research, they usually write off its cost for tax purposes against their corporate income in the year in which they spend the money. In other words, they treat research much as they do other corporate expenses, such as advertising or utilities.

Businesses write off their research spending as if it won’t produce anything of value. This cuts the company’s yearly tax bill, so it conserves cash. The writeoff also depresses the company’s “E,” or earnings, of course, but that’s realistic. A lot of corporate research doesn’t produce anything of lasting value.

However, many successful companies do indeed make money from the fruits of their research—a lot of money, in some cases. Successful research is a hidden asset in that it goes unnoticed until it begins making money. When profit starts flowing, the income stream can last for years, pushing up stock prices along the way.

Hidden value can also materialize from new business connections, changes in legislation and regulatory changes.

Here’s what to look for with growth investing in technology and healthcare stocks

Investors looking for a growth stock with strong potential often look for companies that develop new technologies or offer innovations in healthcare. The stocks of companies that develop popular or revolutionary products can rise exponentially in price over a relatively short period of time.

Use our three-part Successful Investor approach, in conjunction with our growth investing examples and tips, to make a strong, balanced portfolio  

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight. 

Do you feel like most growth stocks are risky or could they be safe investments if you select them carefully?

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